All high-tech roads leading to Chengdu

Date: November 27 2012

Ambrose Evans-Pritchard

The big names in technology are beating a path to western China.

By the end of this year a fifth of all computers in the world will be manufactured in Chengdu, the ancient Sichuan capital of western China. The great leap forward has come with lightning speed and spans the gamut of high-tech industry. The three state-telecom giants - China Mobile, China Unicom and China Telecom - are together spending $US47 billion ($45 billion) to create the world's largest cloud-computing base at the city's Tianfu software park.

Country cousins they are not in Chengdu. There is no reason why they should be. The city competes with Rome for primacy as the world's oldest metropolis (Baghdad is not quite the same as Babylon), and competes with Tuscany for food.

Foreign critics have clung too long to the 1990s narrative of a booming eastern Chinese seaboard - Beijing, Tianjin, Shanghai, Shenzhen and Guangzhou, some 300 million people deep - backed by a vast hinterland of ignorance and poverty.

It was never so, and is wrong today as the great boom rotates west. Chengdu has been an aerospace centre since the 1950s, strategically located in the Sichuan Basin behind a ring of escarpments - including the 7620-metre peaks of the Great Snowy Mountains, many of them unclimbed to this day.

The 14 million-strong city is now pole-vaulting up the technology ladder. Chengdu Aircraft Corp manufactures China's stealth fighter, the J-20 Black Eagle. Washington and Moscow were stunned when it took to the skies in 2010. More prosaically, its aerospace industry builds nose cones for Airbus and the rudder for Boeing's 787 Dreamliner.

Chengdu's mayor, Ge Honglin, has a built a 3-D model of his city - the size of a tennis court - with an elaborate system of lights showing where the allocated clusters are being built. Precision machinery here, optical electronics there, automobiles off to one side, and on and on.

A kilometre-wide green belt of lakes and parks will separate the ''Garden City'' from the smoke stacks, to be linked to the first car-free town of 30,000 families - designed by Chicago architects Adrian Smith and Gordon Gill as a pilot project for the nation.

The top-down planning breaches basic market principles. It should not work, yet the clusters are filling up. Chengdu is actually realising its mantra of becoming China's Silicon Valley, fed by 51 universities, graduating 200,000 scientists and engineers each year.

The US semi-conductor group Intel built its first plant here nine years ago, lured inland by the Chinese government's ''Go West'' incentives - intended to keep mutinous migrant workers safely anchored to their regions. The sweeteners include 15 per cent corporation tax for a decade (instead of 25 per cent), with no tax on the first two years of profits and half tax on the next three years.

Intel has since shifted the bulk of its operations from Shanghai, which already has Californian wage costs in pivotal sectors. It produces half the global supply of laptop chips from its Chengdu operations.

The big names of the computer industry have followed. Dell and Lenovo came last year. Foxconn has cranked up operations from nothing to 80,000 workers in barely two years. Last month it built 80 per cent of Apple's global output of iPads at eight cavernous galleys outside the city.

It is why Chengdu has shrugged off this year's hard-landing in coastal China. Growth has slipped slightly to 13 per cent over the past nine months but is already picking up again. Much the same story is unfolding in Chongqing on the Upper Yangtze - two hours away by high-speed train - where party boss Bo Xilai ruled an urban sprawl of 32 million with an odd mix of Maoist patrols and market panache before he ruffled too many feathers. Chongqing grew 16.5 per cent last year.

It is the same too in Xi'an, the old imperial capital to the north, and in a string of cities and regions across the interior. Inner Mongolia grew 15 per cent, as did once sleepy Ghuizou - home to the lakes and gorges of Guilin.

So while it is undoubtedly true that coastal China has exhausted the low-hanging fruit of catch-up growth, the depth of the hinterland changes the equation for China as a whole.

Of course, you never really know where the economic miracle ceases to be real and mutates into blow-off extravaganzas. Has the Communist Party rolled the dice once again on rampant over-investment and an obsolete model? Hard to tell.

Chengdu will open the world's largest building within a few weeks, the New Century Global Centre. It a huge glass pagoda, the latest Chinese adventure of British-Iraqi architect Zaha Hadid.

A few hundred kilometres away in Mao's old haunt, this will soon be topped for sheer exuberance. The city of Changsha is about to erect the world highest building - Sky City - in 90 days flat. It will be finished in March. That is stimulus for you.

Yet Chengdu is building more space than any city in China, and probably in the world, with 30 skyscrapers above 60 floors under way, and 90 big commercial complexes.

''It is Manhattan, not Chengdu,'' said Zhau Yun as she looked out of her apartment window across a forest of cranes.

Mrs Zhau, who heads the British Chamber of Commerce, said the plans are larger than the Pudong financial district in Shanghai. She hopes they know what they are doing.

So does Wang Yongping from China Commercial Real Estate Association, who told Caixin Magazine that Chengdu has become ''a bubble''.

Much the same was said about Pudong itself in the early days, of course.

We all know the bearish case on China. The workforce peaks in 2015. The dependency ratio is rocketing. The supply of cheap labour from the country is drying up. There is overcapacity across swathes of industry. Bad debts in the banking system have yet to be revealed. Water and energy are scarce, and not yet priced to reality.

Yet we also tend to underestimate the fancy footwork of China's commissars in skipping over apparently insurmountable hurdles. If mayor Honglin is right, the bears may have to wait another cycle or two for China-dammerung. A hinterland boom in regions containing 700 million people or more is not to be sniffed at.